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The evolving role and definition of the federal funds rate in the conduct of U.S. monetary policy

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  • Belongia, Michael
  • Hinich, Melvin

Abstract

Over the past twenty years, the federal funds rate has evolved from being an intermediate target or indicator variable in discussions of monetary policy to the Federal Reserve’s (exogenous) policy instrument. How the funds rate is characterized has important implications for modeling, particularly in settings such as the popular Taylor Rule. Crucially, however, little investigation has been done to examine whether the funds rate meets the conditions one would require for an instrument of policy. This paper offers empirical evidence on the relationships among the federal funds rate, variables that might influence its behavior and variables of interest to monetary policy.

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File URL: http://mpra.ub.uni-muenchen.de/18970/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18970.

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Date of creation: Apr 2009
Date of revision: Aug 2009
Handle: RePEc:pra:mprapa:18970

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Keywords: federal funds rate; monetary policy; causality tests; reserves;

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  1. Brooks, Chris & Hinich, Melvin J., 1999. "Cross-correlations and cross-bicorrelations in Sterling exchange rates," Journal of Empirical Finance, Elsevier, vol. 6(4), pages 385-404, October.
  2. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
  3. Leonall C. Andersen & Denis S. Karnosky, 1977. "Some considerations in the use of monetary aggregates for the implementation of monetary policy," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 2-7.
  4. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2003. "Econometric inflation targeting," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 430-461, December.
  5. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
  6. Brock, William A. & Sayers, Chera L., 1988. "Is the business cycle characterized by deterministic chaos?," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 71-90, July.
  7. Boschen, John F & Talbot, Kathleen E, 1991. "Monetary Base Growth, Deposit Growth, and Inflation in the Postwar United States," The Journal of Business, University of Chicago Press, vol. 64(3), pages 313-37, July.
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Blog mentions

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  1. There is nothing “unconventional” about money base control
    by Lars Christensen in The Market Monetarist on 2013-11-30 09:06:27

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